Full Cycle Payroll Service

Payroll is the end-to-end process of paying employees accurately and staying compliant with federal, state, and local payroll tax rules. Key employer responsibilities include:

• Calculate gross pay (hours, salary, overtime, bonuses) and apply pre-tax deductions.
• Withhold and remit employee taxes (federal income tax, Social Security, and Medicare).
• Pay employer taxes (employer share of Social Security and Medicare).
• Deposit payroll taxes on time via EFTPS and applicable state portals.
• File required payroll tax returns (commonly Forms 941 and 940; sometimes 943 or 944).
• Issue year-end wage statements (Form W-2) and file with the Social Security Administration (SSA).

At minimum, collect:

• Form W-4 (Employee’s Withholding Certificate) to set federal income tax withholding. 
• Form I-9 (Employment Eligibility Verification) to document work authorization. 
• Any state withholding forms (varies by state) and required new-hire reporting information.

 Worker classification depends on control and independence—who controls how the work is performed and the business relationship. Misclassification can trigger back payroll taxes, penalties, and amended filings (including corrected wage reporting). Use the IRS framework in Pub. 15-A for classification factors and documentation practices. 

 An Employer Identification Number (EIN) is the IRS-issued business tax ID used for payroll tax reporting and deposits. You typically need an EIN if you have employees or must file federal employment tax returns. 

 You must obtain each employee’s legal name and SSN and use them consistently on payroll filings and the Form W-2. Do not use an ITIN in place of an SSN for wage reporting. If the employee applied but hasn’t received an SSN by year-end, follow IRS W-2 instructions for handling missing SSNs (commonly “Applied For” in permitted situations).  

For 2026:

• Social Security (OASDI): 6.2% employee + 6.2% employer (12.4% total) up to the $184,500 wage base.
• Medicare (HI): 1.45% employee + 1.45% employer (2.9% total), no wage base cap.
• Additional Medicare Tax: extra 0.9% on employee wages above $200,000 (employee-only withholding).

 Federal income tax withholding is determined using:

• The employee’s Form W-4 elections, and 
• The IRS withholding methods/tables in Publication 15-T (updated for the year). 

 Supplemental wages are payments outside regular pay (bonuses, commissions, overtime, awards, taxable fringe benefits). Common federal withholding approach:

• 22% flat rate (optional method) when paid separately or otherwise eligible, and
• 37% on supplemental wages over $1,000,000 to an employee in a calendar year (mandatory on the excess).

 Your deposit frequency is generally monthly or semiweekly, based on your “lookback period” tax liability:

• $50,000 or less: monthly depositor.
• More than $50,000: semiweekly depositor. 
• $100,000 next-day rule: if you hit $100,000 in accumulated taxes on any day, deposit by the next business day.

 IRS deposit penalties are percentage-based and increase the longer the deposit remains late (commonly 2% up to 15%, depending on timeliness). Late or inaccurate payroll returns can also trigger separate penalties and interest. 

 Form W-2 reports each employee’s annual wages and withholdings. Employers must:

• Provide W-2s to employees by January 31 following the tax year, and
• File W-2 copies with the Social Security Administration (SSA) on the same deadline (unless the IRS/SSA announces a different due date for a specific year). 

 Corrections should be handled quickly to reduce downstream notices and mismatches:

• Form 941 errors: file Form 941-X (Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund).
• W-2 errors: file Form W-2c (Corrected Wage and Tax Statement) and related transmittals as applicable.

 Keep employment tax records for at least 4 years after the later of the due date of the return or the date the tax was paid. Retain payroll registers, timecards, W-4s, proof of deposits, and filed returns. 

 Backup withholding (generally 24%) applies to certain non-wage payments (often vendor/contractor payments) when a payee fails to provide a correct taxpayer ID or under certain IRS conditions. It does not apply to employee wages processed through payroll.  

 Yes. Even with a payroll company handling calculations, filings, and payments, the employer remains accountable for:

• Accurate tax withholding,
• On-time deposits, and
• On-time filing of payroll tax returns.

Best practice: enroll in EFTPS and periodically verify deposits and balances.

 Treat payroll notices as time-sensitive. Recommended workflow:

• Read the notice, confirm the tax period and form type (941/940, etc.).
• Reconcile against payroll reports, deposits, and prior filings.
• Respond by the deadline with documentation (deposit confirmations, amended returns if needed) and keep a full audit trail.

 Certain employers must notify employees who had no federal income tax withheld that they may be eligible for the Earned Income Credit. This is commonly satisfied by providing Notice 797 or including the required statement with the employee’s Form W-2 distribution. 

 In most cases, no—part-time and seasonal employees are subject to the same federal payroll withholding, FICA taxes, deposit rules, and W-2 reporting as full-time employees. State rules (new hire reporting, unemployment insurance, workers’ comp classification) can add requirements. 

 Family payroll rules vary by relationship and business entity type. A common federal rule:

• Wages paid by a parent’s sole proprietorship to a child under age 18 are generally not subject to Social Security and Medicare, though income tax withholding may still apply depending on circumstances and elections.

Because entity structure matters (sole prop vs. partnership vs. corporation), document the relationship, job duties, and payroll setup.

 For primary-source payroll compliance guidance, use:

• IRS Employment Taxes hub and Employer’s Tax Guide (Pub. 15),
• IRS Employer’s Supplemental Tax Guide (Pub. 15-A),
• Federal income tax withholding methods (Pub. 15-T).